Los Angeles Industrial Real Estate Property Market Update | Q4, 2024

Here is the industrial real estate property market update in Los Angeles, Q4, 2024

Like most everywhere else within the United States, the Industrial vacancy in Los Angeles has increased over the past two years. The main difference though, is that while national vacancy expansion has been driven by supply growth, Los Angeles' has been driven by a contraction in occupancy, which has fallen below pre-pandemic levels, not so much from new construction deliveries.

Net absorption for Los Angeles has continued to be negative in its last 11 consecutive quarters up to the close of 2024. In fact, even some spec developments are delivering vacant. Overall vacancy is currently 5.8% as of the first quarter of 2025 (availability is approximately 7.7%), up from an all-time low of 1.7% at the beginning of 2022.

Roughly 37% of most of the new industrial space completed since 2023 still remains vacant. Meanwhile, trailing-year net absorption of SF was weighed down by downsizing logistics tenants, bankrupt retailers closing warehouses, and some manufacturers shutting down operations and moving to Mexico.*

Vacancies have grown the most in areas tied to port activity, such as Vernon, Commerce, and City of Industry. Some logistics tenants continue to downsize heading into 2025, often vacating older, less functional buildings in their portfolio. Imports to Southern California's twin ports were below peak levels reached in 2021-22 until the summer of 2024. In the second and third quarters of 2024, new leasing volume (excluding renewals), a leading indicator of future net absorption, exceeded 10 million SF for the first time since 2021 *.

Currently of the 6.7 million SF currently under construction, the majority of which is available for occupancy, and will in fact likely be delivered vacant, contributing to overall rise in vacancies. This is tempered with the demolition of obsolete buildings, which should limit net supply growth and therefore not much in an overall vacancy change.

Tenant demand is forecasted to accelerate sometime in mid-late 2025. Combine this with the low construction pipeline for industrial, could lead to more moderate supply additions this year. Tenants are still vacating spaces at a heavy pace heading into 2025, but vacancy does not rise substantially higher in the forecast, with new leasing activity keeping up for the most part.

Asking rents in the market have declined by approximately 17% from the peak in 2023, marking the first major sustained downturn in over a decade, and one of the largest pricing adjustments we have seen for just one year. In addition, landlords are offering increased concessions such as free rent, effectively lower the effective rents.

Rents may be reduced further in 2025 if vacancies increase above historical averages. There is a possibility of rents rising though, due to the minimal deliveries of new space under construction, which may be a signal that market conditions could potentially tighten again as demand improves.

*Source: CoStar Analytics and Market Reports